Transformation needs to go deep into the business, if it’s going to be effective.

That requires three steps.

1/ Re-design internal structures

Companies need to be product-focused: product management should be the core function in a company and everything else should support delivery of brilliant products in real-time. Product management is the ongoing improvement of a product based on changing understanding of user needs in real-time.

IT’s response must be to shift from the start-and-stop project model to continuous iteration under the direction of a product manager. Internet companies release updates to their products hundreds or even thousands of times a day, not once every 6 months.

A great digital product isn’t just a user interface; it is an ensemble of great people, processes, policies and systems. It doesn’t make sense for companies to split product responsibilities between a Chief Digital Officer for the front-end and a Chief Information Officer providing the back-end. Organisations need a single Chief Digital and Information Officer with oversight for consolidated digital service delivery, which is orchestrated by the product management function.

Pioneers are comfortable working on novel, user-facing problems where experimentation and rapid learning is essential to understanding user needs and reducing risk, in small teams bearing full responsibility for product delivery. They are innovators who are at ease with Lean Startup and Agile methodologies. They’ll grow frustrated working on only solving well-defined problems. They have the creativity and tenacity to build the first ever digital computer from scratch.

Town planners take settlers’ products and industrialise them into highly profitable and commoditised products that take advantage of economies of scale. Their talents lie in perfecting and creating platforms from existing products. They are comfortable engineering solutions to well-defined problems. Agile’s not the right way to build a nuclear power plant, and companies shouldn’t expect it to work on processing platforms. Town Planners are more comfortable using highly structured methods. Amazon has a lot of town planners who build stable platforms.

We shouldn’t expect digital workers to be all things to all people. Their skills and mindsets correspond to specific points in a product’s lifecycle. Allocating them to the roles that fit their aptitudes and attitudes makes the best use of employees’ skills, and enables a conveyor belt to move products from ideation through to commercialisation and then platformization.

2/ Tackle the Square of Despair

Too many companies suffer from what I call ‘The Square of Despair’: four structural forces that collude to resist change, especially within large organisations:

Inappropriate procurement that stems from years of outsourcing and deskilling and outsourcing encourages organisations to turn their IT teams into vendor relationship managers instead of makers. These organisations split delivery and design of their services between the multiple vendors. They are forced to fix a project’s scope at precisely when they have the least information to do so: when they first put out a request for tender, before building a prototype and seeing what users really expect from a product.

Inappropriate governance that slows down delivery. Heavy, waterfall-style governance is used on products for which it’s ill-suited and increases risk. Too many steering committees or program boards are expected to understand the status and intent of a product from a hundred-page risk document sent immediately before a governance meeting. Agile has its own risk mitigation elements built into the method. It does not need the governance of another method designed for a different type of problem added to it. You should use the right method of governance for the right problem.

Inappropriate funding,whichis based onthe old model (outsourced product and IT, heavily reliant on capex) is another significant problem. For the early stages of products led by pioneers, it is wrong to have funding that’s conditional on claiming certainty from the the start. A drip feed funding model would be more appropriate - after a couple of sprints, leaders can decide whether to continue to fund - based on outcomes delivered. For platforms, where by definition there will be have a well specified requirement, it is essential for a business case and set funding to be developed - to remove ambiguity.

Tackling the Square of Despair means making procurement fast, nimble and chunking it down into smaller purchases. This allows access to innovative solutions from start-ups and SMEs; that’s why government agencies have developed Australia’s Digital Marketplace and the UK’s G-Cloud.

Transformation can be painful. There will be challenges and resistance, especially from people in the legacy parts of the business. That cannot be used as an excuse to pull back from deep-seated transformation and turn to surface-level solutions.

Transformation by consensus, or by occasional hackathon, will not work, because transformation is not iteration from a low baseline: it requires making fundamental changes to an organisation’s structure and processes.

‘Waiting any longer to embrace digital change means exposing your organisation - and its employees - to the risk of being driven out of the market.’

Transformation is difficult and it’s essential, if businesses want to remain off a Receiver’s watch list in a digital world.

Organisations that want to thrive in the digital age need to redesign their internal structure, tackle the Square of Despair, upskill their staff and have the political will to radically transform themselves, rather than adopting tokenistic solutions.

Paul Shetler is Expert in Residence at Stone & Chalk and an adviser to governments and organisations around the world who are transforming their business. He is a speaker on digital transformation and organisational change.

Paul was the CEO of the Digital Transformation Office and the Chief Digital Officer of the Australian Government’s Digital Transformation Agency.